What Role for Public Finance in International Climate Change Mitigation

Abstract

The level of investment required to finance carbon mitigation projects to stabilize carbon emissions at current levels is estimated to be in the order of USD 200-210 billion annually (UNFCCC 2007). The IEA estimate about around USD 150 billion needs to be invested annually between 2010 and 2050 in the early deployment of new technologies.

This paper considers this challenge in the context of the investment needed in developing countries under a post-2012 global agreement. Firstly, we consider possibilities for raising this scale of finance amongst developed countries in a short time frame and offer insights on some innovative financing approaches. Secondly, we discuss what policy approaches are needed to ensure that public finance is used in the most efficient and cost-effective manner towards catalysing major technology change. We conclude that early stage deployment and R&D financing are significant gaps in the innovation chain which public institutions need to address to achieve the greatest impact for public financing in clean energy investment.

Keywords: public finance, climate change mitigation, developing countries, venture capital

JEL Classification: H2, H5, 03